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Get Real – Brazil’s curency is probably near a bottom

The Brazilian real has been in fast retreat for the last few months with a tumble that only the South African rand has managed to supersede. Investor interest in Brazil has waned as financial ratios have deteriorated, the outlook on its rating has become more negative and the government continues to mismanage the macroeconomy and meddle in sectors.

Relief for the currency is likely soon. Futures suggest interest rates will be pushed to 10.5% at the next meeting of the Central Bank committee, always a substantial support for the currency. At that level, it would help bring back foreign investors particularly the Japanese who are big buyers of the juicy yields on Brazilian paper especially when compared to the thin pickings to be had on Yen rates. The surge in issuance overseas by Brazilian companies suggests that they are confident that the currency is likely to hold its own against the greenback.

That leaves the question of a possible downgrade, which would leave Brazil worryingly near a sub-investment grade rating. That is unlikely to happen as the government seeks a slightly more market friendly tone. Marcio Guedes, a director at the association of investment banks Anbima, for one is sanguine. “The risk is there but the government has realised that and is expected to act to avoid the political fallout of a possible ratings cut.”

The wildcard in all this? Elections in October that turn out to be too close to call and trigger a government splurge and further investor nervousness.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial.
Areas of coverage
Below are samples of areas that I cover and some of the common themes that I investigate.
Capital markets
BM&FBovespa markets
*capital raising trends: via equities (IPOs and secondary issuance), debt and loans
*the asset management industry: legislation and coverage of the key hedge, pension and investment funds
* corporate governance: how the regulator is seeking to strengthen best practice and limitations
* debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments.
* private equity market: why this market has been so successful, who’s involved.
*electronic, high frequency trading and alternative trading platforms: what does the future hold?
Banking
*credit: the growth of consumer and business credit and competition between banks and models
*Public versus private: the role and market share of public and private sector banks and the politicization of the industry
* internationalization: which Brazilian banks are expanding overseas and where
* investment banking: the growth of the domestic market and who’s winning which mandates
*regional banks and development banks: what role they play in the industry and how they compete
Mining
*licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level.
* capacity: the feasibility and sustainability of capacity increases
* financing: how miners are raising finance in Brazil and abroad
*competition: the interplay Vale, MMX and junior miners
*logistics: rail, road and port connections
Oil and gas: the fund raising issues related to the massive of pre-salt (link)
Multilatinas: Who are they and how and where they are expanding
Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution
Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved.
IT and software: Can Brazil take on India and build a viable long-term IT industry?
For more information on clients and work, please see the media and consultancy sections.